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Weeding out tax breaks

QUICKREAD

Here are some examples of abuses of the state’s exemption on property taxes for residential agricultural land, according to the state’s Land Assessment and Classification Task Force:

• The owner of a 35-acre lot with a residential home near Castle Rock, valued at $485,000, grows hay on the property, but makes only about $100 a year from that operation. As a result of the exemption, the owner doesn’t have to pay $12,650 in annual taxes.

• A gated, private golf course community in Douglas County has 168 vacant residential lots ranging from a quarter acre to 1.5 acres. Each has a market value between $189,000 to $710,000, but the developer, who still owns them, pays only $2,460 in taxes instead of $1.3 million.

• Two adjacent Montrose County lots totaling about nine acres would have a combined market value of about $120,000 if they were listed as residential, and the owner would have to pay nearly $2,000 in taxes. But because the owner grazes sheep on the land for a single day, together they are assessed at $70 and taxed $1.16 a year.

• A 35-acre parcel in San Miguel County with a luxury home worth about $1.7 million on the property is assessed as being worth $6,972 because its owner allows a nearby herder to run sheep over the lot two to four days a year.

Two residential properties in Montrose County may appear identical, but not when it comes to how they are taxed.

Both are about 3 1/2 acres with modest homes, and both list a secondary use for “hobby” farms.

On one, two recreational horses graze. On the other, hay is grown to sell to horse owners.

But while the horse grazer’s land has an assessed value of about $85,000, the assessed value of the other is only $1,960. As a result, the first owner pays $408 in taxes on the land each year, while the other pays $34.

Why? Because one is listed as residential property and the other as agricultural.

That is only one of several examples statewide where some landowners are using, and in some cases abusing, a loophole in the state’s laws concerning residential agriculture property, according to a little-known legislative task force that examined problems with the agricultural property tax laws.

The crux of the problem is there are few limits to obtaining the designation, said Chip Taylor, executive director of Colorado Counties Inc., which helped the task force study the issue.

By law, landowners have to allow grazing for only one day a year or grow something even if they make no money doing it to get the designation. The trick is in how to fix the problem without hurting the farmers and ranchers it was intended to benefit, Taylor said.

“Where you see two similarly situated taxpayers being treated differently, it’s just not fair,” Taylor said. “We don’t want to do anything that’s going to harm bona fide agricultural operations. We’re just trying to get at situations where it’s pretty apparent that property is not being used for agricultural purposes.”

FARMING ESTATES

In some cases, owners of land with multimillion-dollar homes on the property are paying a fraction of what their neighbors are taxed, said Rep. Tom Massey, R-Poncha Springs, who sponsored the measure in the Colorado Legislature this year to create the task force.

The group, made up of assessors, county commissioners and farmers and ranchers from around the state, listed several instances of what it called clear abuses. They range from the examples cited above to large estate homes on land that is assessed at being worth as little as $100 because they have the agricultural designation, but later sold for as much as $6 million.

A real estate broker by profession, Massey learned of the problem through his own part-time farming interests. He owns 35 acres near Salida, where he has long intended to build a retirement home. Until he can afford to do that, though, Massey grows hay and even has the agricultural classification.

Massey said the problem with fixing the law is in determining what land is truly agricultural and what land is only pretending to be. Some farmers and ranchers are afraid of that question’s answer because closing the loopholes would lead to higher property taxes for them.

“Without the agricultural classification, many farmers and ranchers couldn’t afford to stay in business, so this is a lot more complicated than most people think,” said Mesa County Commissioner Steve Acquafresca, who maintains 300 peach trees on his six-acre home site in Grand Junction. “The greatest outcry of abuse that I was hearing is in San Miguel County, where ranchers are selling off 35-acre parcels to very wealthy people who would put very costly homes on them. These are well-to-do people who are building a second home, so obviously the purpose was not agricultural, yet they have the designation.”

WHAT TO TAX

While the lower tax assessment doesn’t include the home built on agricultural land, it does account for the agricultutal designation of the land underneath, which can save homeowners thousands of dollars.

Acquafresca’s lot located on the north side of town, for example, went from an actual value of about $154,000 in 2008, before he obtained the designation, to $2,450. The $221,000 home on that land, however, is assessed at the same 7.96 percent residential rate as everyone else. As a result, the commissioner pays $1,024 in annual property taxes for the home and $40 for the land. That’s a savings of about $724.

Any change in the law likely would focus on allowing the classification for land beneath residences if the home is an integral part of an actual operation, such as for farmers and ranchers who work the land they live on, Massey said.

At the same time, any rewrite of the law may prohibit the designation to those who live on the property, but aren’t grazing or growing crops themselves, he said.

“The biggest thing we’ve got to decide is the definition of ‘integral,’ ” Massey said. “How do you reconcile whether the domicile is actually integral to the agricultural operation? What about a multi-generation farming operation where the patriarch retires, one of the sons takes the operation over and builds a second house. Is one or both homes integral?”

Mesa County Assessor Barbara Brewer said every county in the state has its own examples of abuse, but ascertaining what rises to that level can be determined on a case-by-case basis only. That’s why she says any change to the law needs to give assessors discretion in who gets the decreased valuation.

REVENUE GENERATOR?

Brewer and Montrose County Assessor Brad Hughes, a member of the task force, said the likely increase in property tax revenue cannot be calculated until assessors know exactly what the Legislature does. Then, it would take time to learn because they would have to go through thousands of cases to determine who is a bona fide farmer or rancher and who is just taking advantage of the loopholes.

In Mesa County, there are 3,713 agricultural residences that are taxed a combined $2,639 a year for land beneath those homes. If the designation were taken away from all, something that isn’t likely to happen, the landowners would pay an average of $256 more a year, earning the county nearly $1 million.

Montrose County rates are slightly higher. There, 1,673 owners pay a combined $8,286 a year in taxes for the land their homes sit on. Without the designation, their average tax bill would increase to more than $268, adding about half a million dollars to the county’s coffers.

Regardless, the two assessors say it isn’t about the money.

“All we want is equity,” Brewer said. “If somebody is getting by with murder, if they’re getting by with something they shouldn’t be, everybody else picks up the tab.”